The average business owner will probably spend more than 25% of his or her day planning for tomorrow (E.g., how much inventory to order, credit requirements, or how to increase sales). But the same business owner might only spend a limited amount of time planning for events that could have much more significant impact on the long-term viability of their company. For example, many businesses place a heavy reliance on a core group of individuals. What would happen if one of these people was permanently or temporarily unable to work?
Employees with special skills or experiences are vital to your success and their loss could cost you months of revenue while they recover. Key person insurance can help compensate your partner/employee for lost income while protecting your business from the costs of lost productivity.
How Does Key-Person Insurance Work?
Business and financial advisors generally agree that life insurance is the most efficient means of funding an agreement on death or disability. Key person insurance can help preserve the value of your business and its continuation in the event of the death of a key stakeholder in the company. Replacing the expertise and knowledge of key individual takes time and can result in a loss of revenue; both can jeopardize the stability of a business. A key person life insurance policy can help.
Some important information:
- One benefit a Key-Person Insurance Policy provides is that it can reduce the monetary impact of the untimely death of a key individual by covering the expense of finding and training a suitable replacement
- The employer is the owner and beneficiary of the policy. While the employee would be the one insured, he/she would not receive any financial benefit from the existence of the policy
- Similar type programs can be set up to protect against a critical illness or the disability of a key employee
